SECTION 3.314. Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export Packers, and Stevedoring Materials and Supplies

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Containers--Glass, plastic, or metal bottles, cans, barrels, and cylinders. The term does not include any item of a type that is enumerated in paragraph (4) of this subsection.

(2) Manufacturers--Those persons covered by the provisions of §3.300 of this title (relating to Manufacturing; Custom Manufacturing; Fabricating; Processing).

(3) Nonreturnable container--A container other than a returnable container.

(4) Packaging supplies--All internal and external wrapping, packing, and packaging supplies including wrapping paper, wrapping twine, bags, boxes, cartons, crates, crating material, pallets, tape, rope, rubber bands, metal bands, labels, staples, glue, mailing tubes, excelsior, straw, cardboard fillers, separators, shredded paper, ice, dry ice, cotton batting, shirt boards, and hay lath.

(5) Returnable container--A container of a kind customarily returned for reuse by the buyer of the contents.

(b) Manufacturers.

(1) Sales or use tax is not due on containers or packaging supplies purchased by manufacturers for use as a part of the completion of the manufacturing process. For the purposes of this section, the manufacturing process is complete when the tangible personal property being produced has been packaged by the manufacturer as it will be sold. For example, toothpaste may be sold at retail in a tube enclosed in a box. Multiple units of the boxed toothpaste are placed in cardboard boxes by the manufacturer. A label is placed on the cardboard boxes identifying the product. The manufacturer then places these labelled boxes on a pallet and covers them with shrink-wrap for shipment, either to the manufacturer's distribution center, the manufacturer's warehouse, or to the manufacturer's customer. The toothpaste manufacturer may purchase the tubes, boxes, labels, pallets, and shrink-wrap tax free. Any additional packaging necessary to transfer the product from the manufacturer's distribution center, or from the manufacturer's warehouse to the manufacturer's customer would also be exempt from tax.

(2) Sales tax is not due on internal or external wrapping, packing and packaging supplies sold to a person for the person's own use, stored for use, or used in wrapping, packing, or packaging newspapers as defined in §3.299(a) of this title (relating to Newspapers, Magazines, Publishers, Exempt Writings), including those distributed free of charge to the general public.

(3) Sales tax is not due on nonreturnable containers, if the purchaser fills the container and sells the container with its contents. See subsection (g)(3) of this section regarding returnable containers.

(4) Sales or use tax is not due on ice used by manufacturers and processors inside or outside a package in order to shape, form, preserve, stabilize, or protect the contents of the manufactured product.

(c) Sale of packaging supplies to persons other than manufacturers. Sales or use tax is due on the sale of packaging supplies, including gift wrapping supplies, to persons who repack tangible personal property prior to sale, produce shippers who are not original producers, wholesalers, retailers, and service providers other than laundry and dry cleaners for use in delivering, expediting, or furthering in any way:

(1) the performance of a taxable or nontaxable service;

(2) the rental of tangible personal property; or

(3) the sale of tangible personal property.

(d) Gift wrapping supplies. Sales tax is due on the purchase price of gift wrapping supplies used by persons providing gift wrapping services.

(1) Tax must be paid on the purchase price of gift wrapping by the person who provides the service whether or not the item being gift wrapped was sold by the person providing the service.

(2) Tax must be collected on a charge for gift wrapping if the person who provides the gift wrapping service sold the item that is being wrapped and does not provide the service on a stand-alone basis.

(e) Combination businesses. A business that primarily manufactures tangible personal property for sale may also purchase tangible personal property for resale that was manufactured by another entity. If the business is primarily a manufacturer, all packaging supplies may be purchased tax free even though a portion of the packaging supplies are used in repackaging a product. For example:

(1) fast-food restaurants are considered to be primarily processors of tangible personal property for sale. The restaurant may also sell tangible personal property without further processing, such as soft drinks, doughnuts, or candy. The fast-food restaurant may purchase all packaging supplies tax free even though a portion of the packaging supplies are used in packaging or serving a nonprocessed product;

(2) a grocery store purchases tangible personal property for resale, but also processes food and food products. A grocery store's meat department or snack bar may be processing as well as re-packaging food and food products. If the packaging supplies used by the departments that process are clearly distinguishable from those packaging supplies used in the nonprocessing department, the processing department's packaging supplies may be purchased tax free.

(f) Purchases for resale. A person who purchases packaging supplies for resale "as is," not as part of a packaged product, may purchase the packaging supplies tax free by issuing a resale certificate in lieu of paying tax.

(g) Containers. Sales or use tax is not due on:

(1) containers when sold with the contents, if sales or use tax is not due on the sales price of the contents;

(2) nonreturnable containers when sold without the contents to persons who place the contents in the container and sell the contents together with the container. Throwaway glass bottles are examples of nonreturnable containers;

(3) returnable containers when sold with the contents in connection with the retail sale of the contents or when resold for refilling. An example is a person who sells oxygen with an oxygen cylinder. The oxygen seller must pay sales or use tax on the oxygen cylinder at the time of purchase. If the oxygen purchaser returns the cylinder to be refilled, then no tax is due on the cylinder in that transaction.

(h) Labels and tags. Sales or use tax is due on labels and tags unless they are used as discussed in subsection (b) or are purchased by the type of persons who are described in subsection (k) of this section.

(i) Export packers.

(1) An export packer is a person who packages property to be exported outside the territorial limits of the United States.

(2) Crating and packaging supplies as listed in subsection (a)(4) of this section, when purchased by an export packer to export personal property, are exempt under Tax Code, §151.307, whether used to package the export packer's property, that of vendors shipping such property to their foreign customers, or that of purchasers who contract and pay for such services.

(3) An export packer may give exemption certificates to suppliers on material purchases but must maintain records showing which materials were used for the exempt purpose of exporting tangible personal property.

(4) The export packer need not obtain a sales or use tax permit if all crating and packing supplies are purchased for exporting tangible personal property.

(j) Stevedoring services. Materials and supplies are exempt when purchased by a person providing stevedoring services for a ship or vessel operating exclusively in foreign or interstate coastal commerce if the materials and supplies are loaded aboard the ship or vessel and are not removed before the departure of the ship or vessel.

(k) Laundry and dry cleaners. Sales tax is not due on hangers, safety pins, pins, inventory tags, staples, boxes, paper wrappers, and plastic bags that are purchased by a person who performs laundry or dry cleaning services, if the items are used to wrap, pack, or package an item that the person has pressed and dry cleaned or laundered in the regular course of business. See §3.310 of this title (Relating to Laundry, Cleaning, and Garment Services).

Source Note: The provisions of this §3.314 adopted to be effective July 23, 1992, 17 TexReg 4958; amended to be effective May 3, 1996, 21 TexReg 3550; amended to be effective December 6, 1996, 21 TexReg 11504; amended to be effective March 3, 2002, 27 TexReg 1334